Why public institutions matter in pandemic and non-pandemic times

Dr. Francisco A. Magno, Trustee and Program Convenor, Stratbase ADR Institute

The Philippines is at a critical juncture in its history as the COVID-19 virus continues to wreak havoc on our health and economy. Last week, the Philippine Statistics Authority reported that gross domestic product (GDP) dropped by 0.7% during the first quarter and 16.5% during the second quarter of 2020. The announcement confirmed the country’s descend into economic recession given two consecutive quarters of negative growth.

The last time the GDP sank dramatically was during the dying years of the Marcos regime when GDP dived by 10.5% during the first quarter of 1985. The economic crisis under authoritarianism was fomented by the unchecked exercise of executive discretion, widespread crony capitalism, and the absence of strong public institutions for rules-based governance which drove investors away.

A key role of public institutions is to level the playing field in both political and economic competition. Institutions enable the effective application of rules, constraints and incentives that govern the behavior of actors in a system. To function well, institutions should be able to exercise independence from particularistic interests in society. It is important for them to maintain their integrity, transparency and accountability. In the Stratbase ADRi forum on “Continuing Political Development Towards a Better (New) Normal: Making Public Institutions Matter” last week, Dr. Ronald Mendoza, Dean of the Ateneo School of Government, emphasized that power in politics and economics, when left in the hands of the few, can lead to abuse and failure.

The prevalence of captured institutions and abuse of power brought the economy to its knees during the authoritarian years. The unimaginable amounts of money wasted in corruption at that time was fueled by what Dr. Belinda Aquino, Asian Studies Emeritus Professor of the University of Hawaii, referred to as the politics of plunder. The restoration of democracy in 1986 brought hope that the reinstitution of a system of checks and balances, independent media, and rule of law would provide a better environment for the economy to grow. While corrupt practices have persisted, they have been moderated by the presence of oversight audit, legislative, and executive bodies. While political clans have remained, they must compete in regular electoral exercises.

It has taken more than two decades to establish credible institutional mechanisms to regain investor confidence in the Philippine economy. According to Dr. Mendoza, these required slow, painstaking moves for reforms that were pushed and carried over across the single-term presidential administrations. Among the crucial reforms were the creation of an independent Central Bank, the installation of a Competition Commission, the setting up of an effective fiscal and treasury system, building strong checks and balances, and oversight provisions in public procurement, public-private partnership tenders, and government-owned and controlled corporation activities.

The results of these reform efforts were certainly worth the wait. The legacy of the authoritarian years that saw a decrease in GDP per capita after 1982 lingered for two decades until 2003 when the same GDP per capita level was reached and higher levels registered in the succeeding years. GDP growth rates averaged at more than 6% for the past five years. The pursuit of a judicious borrowing and disciplined repayment program over the years earned the country a good sovereign credit rating.

The steady growth rate of the economy now grinds to a halt with the vicious COVID-19 pandemic. Many countries, including the Philippines, call for emergency authority and funds for the executive to swiftly and efficiently respond to the health crisis. As huge public funds are now being allocated and used to address the health crisis and deteriorating economic conditions, it is important that institutional safeguards for transparent and accountable governance, checks and balances, and strong audit and legislative oversight are in place.

Institutional reforms to prevent the excesses of the authoritarian years and create a level economic playing field should be defended. In addition, there is a need to pass more legislation to improve transparency and accountability in governance, including the Freedom of Information Act, the Budget Modernization Act, and the Whistleblower’s Protection Act.

Sustaining the efforts to level the economic playing field will need deep reforms that will level the political playing field. For Dr. Julio Teehankee, Professor of International Studies of De La Salle University, these require the passage of long-overdue legislation on anti-political dynasties, political party reform, and campaign finance reform. In the absence of these measures, personality-based politics continue to be the norm. Political parties should be strengthened as representative institutions to aggregate interests, produce evidence-based policies, and foster adherence to rules-based governance. The passage of these legislative bills would go a long way to enhance the circulation of new leaders and ideas in our democratic system. Deepening the reforms in leveling the political and economic playing field are critical in making public institutions matter in pandemic and non-pandemic times.

This article was originally published in BusinessWorld.

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